Know your downside risk.
Poker players know how much they are prepared to lose; whether they’re playing in a massive tournament or just a weekly game with friends and beer. They might bend the rules a little, but – if they’re going to remain a poker player for any serious length of time, anyway – they’ll stick pretty close to those limits if things go tits-up at the table. Kenny Rogers summed it up perfectly with his inimitable ‘The Gambler’ lyrics –
You’ve got to know when to hold ’em
Know when to fold ’em
Know when to walk away
Playing the financial markets requires exactly the same awareness of your downside risk that poker demands. Many traders place a stop-loss limit on their position as they open it. Buy 500 BABA at best, and at the same time lock in a rolling stop-loss of $5. That’s a potential downside risk of $2 500 right there, if your timing’s out and you place your bet in a down trend.
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